Contracts Which Presuppose Prices

On The Duty of Man and CitizenAccording to the Natural Law (1673)

Samuel von Pufendorf

BOOK 1, CHAPTER 15On Contracts Which Presuppose the Prices of Things, and the Duties Thence Derived

1. An agreement in general is the consent and convention of two or more persons to the same purpose. But because frequently simple agreements are distinguished from contracts, the distinction seems to consist particularly in this, that we give the name of contracts to any such agreements as concern things or actions involved in trade, and hence presuppose ownership and prices. But such conventions as are entered into concerning other matters, are denoted by the common term agreements. And yet, to some of these the terms agreement and contract are indifferently applied.

2. Contracts can be divided into the gratuitous and the onerous. The former bring some advantage gratis to one of the contracting parties, for example, a commission, a loan, a deposit; the latter bind both parties to an equal burden, for in these something is furnished or given, with the intent that an equivalent be received.

3. All onerous contracts, moreover, have this feature, that equality must be preserved in them, in other words, that each of the contracting parties make an equal gain; and where an inequality arises, the one who has received less acquires a right to demand that his lack be made good, or the contract be broken off entirely. This, however, is particularly the case in states, where prices are fixed by the usage of the market, or by law. But to find and determine this equality, it is required that the thing which is the subject of contract, together with its qualities, if they arc of any importance here, be known to both of the contracting parties. Hence also he who is to transfer something to another by contract, must indicate not only its estimable qualities, but also a lack of the same, and defects. For without this a just price cannot be settled. Yet such circumstances as do not in themselves affect the thing, it is not necessary to indicate. And defects already known to both need not be indicated. And he who knowingly acquires anything defective, has himself to blame.

4. Moreover in contracts of this kind equality must be so far maintained, that an inequality discovered later must be corrected, even though there was no concealment, and no fault of the contracting parties, for instance, because a fault was not noticed, or a mistake made in the price. And something must be taken from him who has more, and given to him who has less. Yet in order to avoid a mass of litigation, the civil laws give relief here in general only to very great injuries. For the rest they bid each man look out for his own interests.

5. Gratuitous contracts are especially these three: commission, loan, and deposit. It is a commission when one undertakes for nothing the management of another’s affairs, when the latter requests it, and intrusts the matter to the former. And this happens in two ways: so that the method of management is either prescribed or left to his judgment and skill. In this contract one must conduct himself with the highest honor and the greatest industry, since in general no one gives a commission except to a friend, and one of whom he has a high opinion. And so, on the other side, the trustee must be indemnified for expenses incurred in carrying out his commission, also for losses suffered in consequence of the same, and properly resulting from the affair committed to his charge.

6. It is a loan when we grant another the use of something of ours for nothing. In this one must take pains to keep and handle that same thing carefully and with the greatest diligence; and not apply it to other uses, or further than the lender permitted; and restore it uninjured, and just as it was received, except for what has been lost by ordinary use. But if it was loaned for a fixed time, and meantime the owner begins to have great need of it, owing to some chance not foreseen at the time of making the loan, it must, upon request, be restored to him, without subterfuge. If, however, the thing lent has perished by some chance cause unforeseen, without any blame on the part of the borrower, if it would have perished even in the possession of the owner, the estimated value need not be paid. Otherwise it seems fair that the borrower should pay the estimated value, since the owner would not have lost it, if he had not been generous toward the other. Vice versa, if any useful or necessary expense has been incurred for the thing lent, aside from what regularly attends the use of the thing, it must be refunded by the owner.

7. It is a deposit when we intrust to the honor of another a thing that is ours, or concerns us in some way, that he may guard it for nothing. In this it is required that the thing intrusted be diligently guarded, and restored whenever it pleases the depositor; unless restitution would be injurious to the owner or others, and for that reason must be postponed. And it will not be permissible to use a thing deposited, except with the consent of the owner, if indeed it would in any way be the worse for use, or if it is to the owner’s interest that it be not seen. And if a man has ventured to do so, he will make good any risks incurred in the use of the thing. Also it is not permitted to take a thing deposited out of the wrappings or receptacles, in which it was inclosed by the depositor. Moreover, it would be a great disgrace and more shameful than theft, to deny a deposit; and it is far more disgraceful, to deny a deposit of charity, that is, something deposited in view of the danger of fire, the fall of a house, or a riot. On the other side, expenses incurred for a deposit must be refunded by the depositor.

8. Among the onerous contracts, about the most ancient, and that by which alone trading was carried on before the invention of money, is barter, in which each side gives a thing for a thing of equal value. Yet, even today, after the invention of money, there is a kind of barter particularly common among merchants, by which commodities are not simply compared with each other, but first appraised in money, and then turned over to their respective purchasers in place of money. But a different transaction from the contract of barter is a reciprocal donation, in which it is not necessary for equality to be observed.

9. Buying and selling is that by which, for a money consideration, ownership of a thing, or a right equivalent thereto, is acquired. Its simplest form is when the price is first agreed upon, and then the buyer at once offers and hands over the price, and the seller the commodity. Often, however, it is agreed that the commodity shall be at once delivered, but that the price is to be paid after a certain interval. Sometimes the price is agreed upon, but that the delivery of the property or commodity shall take place after a certain time. In this it seems equitable that, before the expiration of that time, the property be at the risk of the seller. But if the buyer should delay after the time has elapsed, and not see to it that the property be delivered to him, it will henceforth be lost to the buyer. To the contract of buying and selling various agreements-are commonly added; for example the addictio in diem [provisional sale], by which property is sold on such terms that the seller has the privilege of accepting a better offer from another party, if made within a certain time. There is also the lex commissoria [forfeiture clause], when it is agreed that, if at a certain date the price has not been paid, the property has not been bought. Also the retractus [recall], or an agreement to sell back again; which is so worded that if the price is not offered within a certain rime, or at all, the buyer is bound to restore the property to the seller. Or the agreement may be that, if
the property is offered to him, the seller shall be bound to restore the price; or that, if the buyer is going to sell again of his own motion, the former seller shall have precedence over all others in purchasing; and this is also called the right of refusal. So too, it is common for the seller to reserve a certain part of an estate he has sold, or a certain use of that part. There is another kind of purchase which they call per aversionem [without inspection], when many things of unequal value are appraised not singly, but valued and bought at haphazard and in the lump. In that form of sale which we call auction, the thing is at last knocked down to that one of several bidders who has offered the most. Finally, there is a kind of purchase in which no definite thing is bought, but merely a probable hope. In this some hazard is involved, so that neither the buyer should complain, if the hope disappoints him, nor the seller, if it goes far beyond.

10. Letting and hiring is a contract by which the use of a thing, or services, are assigned to a man for pay. In this, while it is regularly customary to agree in advance upon the payment, still, if a man has assigned to another his services or the use of his property, without previous determination of the price, he is understood to expect as much as comports with common usage and the equity of him who hires. With regard to this contract, it is to be observed that, if the thing let has perished utterly, the person who hires is henceforth no longer held for payment or rent. But if the thing let has a certain and definite use, the owner is bound to guarantee its fitness for that use; and correspondingly, if it suffers any damage, the hirer subtracts from his rent in proportion to the diminished usefulness of the thing. But if the property let has an uncertain yield, and contains an element of chance, an abundant crop is so much gain for the lessee, and in the same way a bad crop is his loss. And in strict law nothing is to be subtracted from the rent on account of that leanness, especially since the leanness of one year is usually balanced by the fatness of the next. Exception is made if the accidents which robbed him of his crop are very rare, and if the lessee is presumed not to have thought of taking that risk upon himself. For it is certainly fair that such accidents should have the effect of diminishing or remitting the rent. But just as the lessor is bound to put the thing itself into usable condition, and assume the necessary expenses, so the lessee must use it as a good householder, and restore whatever has been lost by his own fault. And he who has engaged to have some work done for him, makes it good in the same way, if the matter is spoiled by his own fault. If a man has let out to another his temporary services, and by any chance has been prevented from performing the same, he cannot claim his wages. But if one has hired the continuous services of another, and the man has become useless for service for a moderate length of time, owing to illness or other chance, it is inhuman for one either to remove him entirely from his situation, or to deduct from his compensation.

11. In the contract of mutuum [loan], a replaceable thing is given to a man, on the understanding that after an interval he is to return the same kind in the same quantity and quality. And the things usually given in loan are called replaceable, i.e., admitting of being replaced in their kind, because anything of that kind can assume the role of another, so that, if one has received of the same kind, quantity, and quality, he is said to have received what he gave. Also, the same things are determined and specified by weight, number, and measure, from which point of view they are also commonly called quantities, as distinguished from specific commodities. A loan is made moreover, either gratis, so that no more is received than was given, or else with some profit, which is called interest. And this is not repugnant to natural law, if indeed it be moderate, and in proportion to the gain which the other makes out of the money, or other loan, and to my loss, or cessation of profit, incurred by the absence of my property. Also if it be not exacted from the poor, for whom a loan takes the place of alms.

12. In the contract of partnership two or more persons contribute their money, property, or services to this end, that the resulting profits may be divided pro rata among them all; and that, if any loss is incurred, this in the same way is to be borne pro rata by each of them. In this partnership it is a duty to show honor and industry; and likewise one must not withdraw prematurely from the same to the detriment of a partner. But once the partnership has been dissolved, after subtraction of profit and loss, each receives as much as he put in. But in case one contributed money or property, the other services, we must consider the manner of that contribution. For, when the services of the one have to do only with handling the other’s money or property, or selling for him, their shares in the profits are determined by the relation between the profit on the money, or property, and the value of the labor, and the safety or loss of the capital concerns only him who contributed it. But when the labor is spent upon the improvement of something contributed by the other, the first is understood to have a share in the thing also, in proportion to the extent of the improvement. But when men have entered into a partnership of their entire property, the several partners must faithfully contribute what they gain, and conversely they are supported out of the common stock, each according to his condition. But should the partnership be dissolved, the division of property would be in proportion to what each brought into the partnership in the beginning; and no questions are asked as to whose property produced the gain or loss to the partnership, unless it was otherwise agreed.

13. There are also a number of contracts which involve chance Among these one may number wagers, in which one affirms, and the other denies, the truth of some event not yet known to either, and a certain sum is deposited on each side, to fall to that one with whose statement the event is found to agree. Here belong all kinds of games, in which there is competition for a prize. Among these, however, less hazard belongs to those which include a contest of wits, skill, adroitness, or strength. In some of them wits and chance display equal force. In others finally chance predominates. And it is incumbent upon the rulers of a state to consider how far the toleration of contracts of this sort is of advantage to the state or individuals. To this class belongs the raffle, i.e., when a number of persons buy something by a common contribution, and then decide by lot so which one of them the thing is to fall entire. Also the pot of fortune, or lottery, i.e., when a certain number of lots or small sheets, inscribed and blank, are thrown into an urn, and then one buys the privilege of drawing them out, so that he who does so receives that thing which the inscription names. Related to these contracts is insurance, or the contract of avoiding a risk and making the same good, by which a man, upon the receipt of a certain sum, takes upon himself and insures the risk which wares to be transported to other places are going to run, so that, if these happen to be lost, the insurer is bound to restore their value to the owner.

14. For the greater solidity and security of contracts sureties and pledges are frequently added. In the case of a surety, another man. who is thought suitable by the creditor, takes upon himself, as a kind of reserve, the obligation of the principal debtor, so that, if the latter does not pay, the other takes his place, with the understanding, however, that what he has spent must be refunded to him by the principal debtor. But, though the surety cannot be held to a larger sum than the principal debtor, it is not unreasonable for the former to be held more strictly to account than the latter, since more confidence was had in him than in the other. But naturally the principal debtor is to be called upon before the surety, unless the latter has taken the other’s obligation entirely upon himself, in which case he is called an expromissor [promisor]. But if several have become sureties for one man, each is to be called upon merely pro rata; unless one of them happens to be insolvent, or there is no opportunity to call upon him. For in that case the others will be burdened with his share.

15. Again, for the security of a loan, the creditor often has the debtor give or assign him some thing, called a pledge or mortgage, until the debt has been paid. The object of this is not only that the debtor may be urged to payment by the desire to recover his property, but also that the creditor may have at hand a source of payment. And for that reason pledges are regularly of a value equal to the debt itself, or greater. But the objects which are pledged are either productive or unproductive. With regard to the former, it is common to add the contract of antichresis [reciprocal usage], i.e., that the creditor may gather the fruits of the pledge, in place of interest With regard to the latter, the lex commissoria [forfeiture clause] is added, namely that the pledge is to fall to the creditor, if payment has not been made within a certain time. And this is naturally not unfair, when the pledge is not more valuable than the debt, plus the interest for the interval, or when it does exceed, the excess is restored to the owner. But, as the creditor must restore the pledge after payment, so in the meantime he is bound to take no less care of it than of his own possessions. And when there has been no contract of reciprocal usage, and the thing is of a kind to be worn out by use, or if the debtor’s interests are in any way involved, the creditor cannot use the thing without his consent. A mortgage differs from a pledge in this, that the latter is constituted by delivery of the thing, while the
former, as the thing is not delivered, consists in the bare assignment of something, especially something immovable, from which, in case of non-payment, the creditor can recover his loan.

16. What are the duties of contracting parties, however, is entirely clear from the purpose and nature of these contracts.